Barclays, Credit Suisse Battle Banker Exodus, U.S. Woes

May 5 (Bloomberg) -- Barclays Plc, Credit Suisse Group AG
and UBS AG will face questions this week about key banker
departures, legal challenges and their efforts to boost
profitability.

Barclays last week lost three top bankers in the U.S. and
Asia before a May 8 strategy announcement that will probably
include shrinking the London-based firm’s investment bank.
Credit Suisse, which holds a shareholder meeting May 9, is
facing potential U.S. criminal charges over its role in helping
Americans avoid paying taxes, people familiar with the matter
said last week. UBS AG, meeting investors tomorrow, is falling
short of profit goals, according to analysts’ estimates.

Europe’s top banks are facing heightened scrutiny from
shareholders, regulators and legal authorities after they lost
market share in some investment banking businesses to U.S.
competitors. Meanwhile key areas of Wall Street revenue are
under pressure: JPMorgan Chase & Co., the biggest U.S. bank,
said last week that it expects trading revenue to drop about 20
percent this quarter from a year ago.

“When banks started thinking strategically about where
they wanted to be, they were expecting fixed-income, currencies
and commodities to be stronger than today, and that the goal
posts on capital would be clearer than they are,” said Eli
Haroush, a fund manager at APG Asset Management in Amsterdam,
which oversees 352 billion euros ($488 billion).

“At the moment banks have to run very fast in order to not
move at all or fall back,” he said. “One of the few items in
their earnings they can control is the cost line and I think
they know they should do more including on compensation.”

‘Disadvantage’

Barclays will now have to compete without some of the key
dealmakers it acquired with its purchase of Lehman Brothers
Holdings Inc.’s North American operations. Hugh “Skip” McGee,
the Lehman Brothers alumnus who received a stock bonus more than
twice the size of Barclays Chief Executive Officer Antony
Jenkins’s, left last week. That was followed by the departures
of Ros Stephenson to Zurich-based UBS and Robert Morrice, the
Asia-Pacific chairman and CEO, who is retiring after 17 years.

The Lehman Brothers acquisition helped Barclays in the U.S.
The bank ranks higher among underwriters of U.S. stock sales
than it does in Europe, according to data compiled by Bloomberg.
The firm is also more active on mergers involving U.S. companies
than on European deals, the data show.

“If people are departing, and you don’t have continuity in
your relationships, that’s a disadvantage,” said Charles
Peabody, an analyst at Portales Partners LLC in New York.

M&A Chief

Mergers-and-acquisitions chief Paul Parker, another Lehman
Brothers alumnus, is planning to leave Barclays in a few weeks
and doesn’t have any immediate plans for what he’ll do next,
according to a person familiar with Parker’s thinking. Kerrie
Cohen, a spokeswoman for Barclays in New York, confirmed
Parker’s intention to leave, without elaborating.

Investors are demanding that Jenkins, 52, outline a
strategy for the investment bank, the biggest source of income
for the firm, after falling behind on targets and boosting pay.

Return on average equity at Barclays’s securities unit, a
measure of profitability, fell to 8.2 percent last year from 13
percent in 2012, short of Jenkins’s target of at least 11
percent in 2015.

“On the cost side of investment banks, restructuring will
require drastic measures -- on top of the further headcount
reductions which are likely,” including reviewing the
businesses to maintain to reduce risk-weighted assets, Philippe
Morel, a London-based senior partner and managing director at
Boston Consulting Group, said in an e-mail.

Jobs Going

Barclays could eliminate 7,500 jobs at its investment bank,
according to an April 22 report by Sanford C. Bernstein. The
European fixed-income, currencies and commodities business may
be the hardest hit, with about 5,000 job losses, analysts led by
Chirantan Barua said in the report. Cuts of 6,500 to 7,500
equate to between 25 percent and 30 percent of the unit’s
employees, the report estimated.

In the strategy review this week, Barclays will say it’s
naming Corporate and Investment Bank Co-Head Eric Bommensath to
oversee a so-called bad bank of unwanted assets and units,
leaving Tom King in charge of the investment bank, a person
familiar with the plan said last week. The bad bank will include
the commodities business and other units previously assigned to
the bank’s “exit quadrant,” including some of the firm’s rates
trading, derivatives and other fixed-income assets, the person
said.

Criminal Cases

The challenge for Barclays “is to continue the rebalancing
of the group away from being a fixed-income dominated investment
bank to being a more balanced investment bank,” UBS analysts
led by John-Paul Crutchley said in a May 1 research note.
Investors would favor “a restructuring that reduced the overall
balance sheet and lowered capital intensity.”

Credit Suisse CEO Brady Dougan, 54, will probably face
questions at his company’s May 9 annual meeting about the
implications of possible U.S. charges against the firm, the
largest of the 14 Swiss banks under criminal investigation in a
crackdown on offshore tax evasion.

U.S. Attorney General Eric Holder said his department is
readying criminal cases against banks that show financial
institutions aren’t too big to prosecute. Improved coordination
with regulators is creating a relationship that “will prove key
in the coming weeks and months” as prosecutors pursue charges,
he said in a video message posted today on the department’s
website. Holder didn’t identify any firms that may be targeted.

‘Unforeseen Events’

Clients -- including trustees, fiduciaries and pension
funds -- could be forced to cut ties with a financial
institution found guilty of criminal charges, some lawyers and
bankers have said.

Credit Suisse fell 2.3 percent to 27.40 Swiss francs in
Zurich trading, the biggest decline in a month. The lender
received demands in past weeks for a guilty plea and names of
American tax evaders with Credit Suisse accounts, Swiss
newspaper NZZ am Sonntag reported yesterday.

“Unforeseen events can occur,” Brad Hintz, an analyst at
Sanford C. Bernstein in New York told Bloomberg Television last
week. “A criminal charge is going to cause the clients to pull
away and you can set off that wildfire in confidence.”

Selling Assets

The uncertainty is already weighing on BNP Paribas SA.
France’s largest bank posted the biggest monthly decline in two
years as analysts cut their ratings on the stock, citing concern
over potential criminal charges for violations of U.S. sanctions
barring business with prohibited countries. BNP Paribas said on
April 30 it may need to pay “far in excess of” the $1.1
billion it has set aside for legal investigations by U.S.
authorities.

At UBS, which has already retrenched in fixed income and
settled a U.S. tax case, the challenge for CEO Sergio Ermotti is
getting rid of unwanted assets fast enough and cutting costs.
Ermotti, 53, will seek to reassure shareholders at a meeting in
Zurich tomorrow that the firm won’t need to review its
objectives after the Swiss regulator’s demands that the bank
hold more capital to cover legal risks delayed profitability
targets last year.

UBS may post a return on equity of 12.9 percent in 2016,
missing a target of 15 percent, according to the average
estimate of 15 analysts surveyed by Bloomberg.

More Restructuring

As of Dec. 31, UBS was about 1 billion Swiss francs ($1.1
billion) short of its cost-reduction target, leaving an
additional 3.2 billion francs of targeted expense savings,
Citigroup Inc. analysts led by Kinner Lakhani wrote in a May 2
research note. Costs and capital are two areas that will
probably be the focus of the investor day, the analysts wrote.

“European investment banks have done about two-thirds of
the restructuring,” Davide Serra, founder and managing partner
of London-based fund Algebris Investments, said in an e-mail.
“UBS has to execute the plan and focus on growing the core
while Barclays is catching up.”